Making the move to Managed Services

Making the move

to Managed Services

A step-by-step guide to a pain-free transition

About the author

A self-professed ‘technical guy’ with an entrepreneurial spirit,

Chris Martin founded GFI MAX RemoteManagement (formerly

HoundDog Technology) with Doug Wilson in 2003.

Chris began his career in corporate IT as a software engineer before moving into infrastructure support and consulting. He went on to start, run and exit two successful IT support companies. The first, ‘a labor of love,’ was based on a break/fix business model. The second concentrated on recurring support contracts (Managed Services) and was one of the fastest growing IT support companies in the United Kingdom during his reign.

Chris is currently involved in marketing, product management and developing programs and materials to help GFI MAX customers improve their businesses. Chris can be contacted on email [email protected].

A step-by-step guide to a pain-free transition

Moving to Managed Services can be a wise decision for IT support

companies that operate in a break/fix, pre-paid or ‘bank of hours’

model. With careful planning and a step-by-step approach,

Managed Services provide a stable revenue and opportunity for

growth. This white paper explains the process, benefits and pitfalls

of such a move.

Contents

Introduction

4

1.0 Break/Fix – An easy entry point or a millstone around your neck?

5

1.1 Break/Fix – An easy entry point?

5

1.2 Break/Fix - A millstone around your neck?

5

2.0 The ‘Promised Land?’ – Managed Services for IT support

7

2.1 What is Managed Services?

7

2.1.1 Managed Services from the provider’s perspective 7

2.1.2 It’s also important to examine what the customer wants from this bargain 8

2.2 Why is it better for the IT support company

8

2.2.1 Scaling your business 8

2.2.2 Less risky business 8

2.2.3 Other ‘sales’ opportunities 8

2.2.4 Bigger exit 9

3.0 Challenges in starting a Managed Services program

9

3.1 Profitable model before scaling

10

3.1.1 Drive down cost 10

3.1.2 System changes or additions 10

3.1.3 Maximize other opportunities 12

4. Managed Services – A pragmatic approach

12

Introduction

Industry surveys indicate that many IT support companies

continue to operate in either a break/fix, pre-paid or ‘bank of hours’

model rather than using Managed Services or provision of IT

support for a fixed monthly fee.

This white paper describes issues around moving to Managed Services and proposes a pragmatic, risk managed approach.

For the avoidance of doubt, we define:

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Break/Fix – payment in arrears for hours (or parts thereof) worked. This would not include any

equipment or parts required. These requests are typically instigated at the customer’s request, e.g.: “My email isn’t appearing”.

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Pre-Paid or ‘Bank of hours’ – payment in advance for a quantity of hours to be worked in the future.

1.0 Break/Fix – An easy entry point or a millstone around your neck?

For a small or start-up IT company, it’s easy to get started with

break/fix, but once under way the attractions become less

appealing. Here’s why it’s easy to get started with break/fix:

1.1 Break/Fix – An easy entry point?

It’s easy and the natural entry point

Starting in break/fix is a natural place to start an IT support business. You’ve no or little track record, so why would anybody commit to you for an extended time period?

It’s an easy sale The customer can see the ‘equation’ straight away. You did 3 hours work @ X amount per hour. That’s XXX, easy.

It’s an easy to understand and low risk deal that doesn’t take a lot of time to convince a customer to enter into such a transactional arrangement. And, if you don’t deliver, he’ll find somebody else.

You get paid for

the work you do Break/Fix offers little risk to the IT company, i.e. you get paid for the work you do and this seems attractive.

It’s what everybody tells you is good business

No doubt, most businesses have accountants and/or business advisors who specialize in providing useful advice. And, they are by their own nature very familiar with – ‘you did three hours worth of work, you’ve got to make sure you’re paid for it and your fully loaded cost per hour is X, so you need to bill at Y to make a certain profit. So, bill by the hour.’

Many target customers are Professional Services

Many of your target customers are themselves ‘Professional Services’ firms, e.g. lawyers, architects, surveyors, etc.

They’re very familiar with the professional services billing conventions; consequently, it’s easy to sell into them on this basis.

1.2 Break/Fix - A millstone around your neck?

But, in time, break/fix brings its own hassles, as the same attractions become millstones around your neck.

It’s an easy and natural entry point

Once you’ve been doing break/fix business a few years it’s very difficult to change your mind-set from being paid by the hour to being paid by the month.

Doing so will demand a considerable change to your business, which gets bigger and more difficult the longer you’ve been going.

TIP: GFI MAX Building Blocks to Managed ServicesTM _{demonstrate an easy way to move towards Managed}

It was an easy

sale Although it was once an easy sale, it doesn’t deliver what the customer really wants. He/she really values his/her IT systems running smoothly, allowing the business to do what it’s supposed to do, and, with as little of their time as possible to manage IT systems or the provider relationship.

With break/fix, business needs are not aligned. The support provider gets paid when there is a problem so there is a disincentive to offer/provide preventative maintenance, which again could lead to downtime or risk for the customer, which is exactly the opposite of what customer wants.

It also makes it more difficult to convince a potential customer of your professionalism – ‘we make our money when your IT breaks’ ... ‘err, so why would our company use your IT support?’

And, if you just turn up when something breaks, you can be easily replaced. Worse still, you’re not in a position to identify areas/projects where you can advise and assist customers.

TIP: GFI MAX Building Blocks program includes sales ideas and includes objection handling you’re likely to encounter when trying to sell a Managed Service.

You get paid for

the work you do When you started, it was a way of ensuring you got paid for the work you did but there is a flipside to this. If you get beyond doing all the work yourself, you’ll have to take on fixed costs (staff) and you have to battle to ensure revenue exceeds costs.

And it’s very, very stressful with break/fix. You can expect many nights lying awake worrying about where you are going to find money to pay your commitments. With pre-paid hours, cash flow is perhaps a little improved as you have the money in your bank account, but it will soon disappear on salaries, and normally well in advance of staffing future work.

In short it’s very difficult to grow a business based on this model due to unknown revenues versus future demands.

TIP: GFI MAX Building Blocks show how to move from break/fix to recurring revenue. You’ll be less stressed and no huge changes to your business are required to get going.

It’s what everybody tells me is good business

What you end up with if you take professional advisors’ advice is focusing on billing more hours at a rate the market probably won’t bear.

These arrangements are re-active, i.e. the provider responds to problems but doesn’t allow time for preventative maintenance (or the customer doesn’t value the preventative maintenance enough to sanction it). This causes a ‘fire-fighting’ mentality in the support provider and potentially lower uptime for the customer. The obvious consequence is dissatisfaction for both customer and provider, and perhaps a deteriorating relationship. If this happens too many times it could develop into a perception problem with your company’s services.

It’s almost impossible to organize a business of this nature to scale effectively:

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The pervading mentality is you get busy, so you recruit a technician, then

you want to make him busy (all the while looking at his billings), so you find more work, and the problem ends up the same. You’ll be running to stand still, revenue and costs rise but profit stays the same or gets lower.

It’s what everybody told me was good business

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As you add in more customers you need to find a capacity to perform a highly unpredictable workload – this means overloading and stressing your technicians and skimping on valuable preventative maintenance. And it takes ages to catch up from periods of unplanned/high demand (if you ever do).

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Also, if you don’t have firm revenues, how can you be confident to recruit more customers and staff? How can you commit to marketing when you don’t have the capability to deliver? If your profit from adding in extra business shrinks – why would you do it?

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And worse, with break/fix the pressure is always on to bill more hours, consequently, if it’s a small company then it’s difficult to get time to learn new technology let alone take a week off to go on holiday with your family.

TIP: GFI MAX Building Blocks details easy, real world techniques you can use to convince customers of the value in recurring monthly arrangements.

Many target customers are Professional Services

The irony is that they’re reluctant to sign up for a recurring monthly arrangement, which promises greater uptime, given their huge loss of revenue if they can’t do or bill their customer work.

Of course, you can convert them, and these can be your most lucrative clients, but they tend to show greatest reluctance. They need to be convinced over time that you’ve got their best interests at heart.

TIP: GFI MAX Building Blocks shows how you can work customers from break/fix to recurring arrangements at their pace.

Having illustrated some of the drawbacks, break/fix is still a great place to start, learn the ropes and build initial traction. But you probably want to leave it behind quickly. So where do you go?

What does the ‘Promised Land’ of Managed Services look like and how do I get there?

2.0 The ‘Promised Land?’ – Managed Services for IT support

Firstly, what is Managed Services and why is it a good business model?

2.1 What is Managed Services?

Managed Services is the provision of ‘outsourced’ IT support in return for a fixed annual or monthly fee. The Managed Services contract may cover all the customer’s IT equipment or specific parts.

2.1.1 Managed Services from the provider’s perspective

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The IT company bears risk of labor required to keep the client’s IT systems running properly. The arrangement will probably run in parallel with manufacturer warranties covering hardware. When these hardware warranties expire, the MSP may offer to warrant the equipment themselves or simply agree to pass through cost of any required replacement parts to the customer. In most part, the IT support provider will handle warranty issues on the customer’s behalf.

2.1.2 It’s also important to examine what the customer wants from this bargain

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In most cases they simply want IT ‘off their desk’ or somebody to ‘just make it work’. Thus, they want to delegate as much of this work as possible to an external provider, with as little of their time to manage the relationship. In short, they want to focus on running their own business.

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It’s important to note that ‘equipment running well’ is defined by the client and as such, tools for clarifying this expectation, e.g.: contracts outlining Service Level Agreements (SLA) should be used to manage expectations.

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The customer will be attracted to fixing variable costs.

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The customer will probably be aware there are major efficiencies in sensible deployment/use of IT systems and their implicit desire is for their IT company to advise on suitable advancements.

Consequently, being a provider of Managed Services makes for an excellent opportunity for an IT support company to deliver on implicit desires of small businesses with no internal IT. And for the IT support company it’s a superior business model to break/fix and bank of pre-paid hours.

TIP: GFI MAX Building Blocks highlights many areas of opportunity for IT support companies.

2.2 Why is it better for the IT support company

Let’s examine in greater detail why it is better for the support provider:

2.2.1 Scaling your business

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Variable risky revenue – As a consequence of this customer tie-in and the monthly fixed payments, an IT company running Managed Services arrangements will be able to forecast their revenues better, which is highly important when scaling a business.

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Unknown demand equals difficult capacity planning – As you have fixed revenue, you can ignore the temptation to take on more and more business to try and secure your revenue. Consequently, you can focus on profitability and organize to deliver your services as efficiently as possible.

TIP: GFI MAX Building Blocks will describe and give you tools to scale your business while growing your profit.

2.2.2 Less risky business

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Occasional customers become long term customers (lock in) – A customer who is paying you monthly and is happy with your services is much less likely to respond to other IT companies’ attempts to lure them away.

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Profit becomes more secure – As long as you’re taking steps to reduce costs in providing Managed Services contracts, you’ll be in a position to have a fairly firm view of your likely profit.

TIP: GFI MAX RemoteManagement™ will help eliminate risks to your IT support operation and GFI MAX Building Blocks will help reduce risk to your company.

2.2.3 Other ‘sales’ opportunities

A Managed Services Provider (MSP) will benefit from other opportunities/arrangements with the client during the contract period:

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Items excluded from the contract – New PCs, etc. The provider will almost always pick up the sales of these as the customer perceives additions to their network are best left to the current provider for a number of reasons:

ű they are the people who look after it day to day,

ű the provider knows their requirements and is well placed to advise best material, ű the customer doesn’t know where or how to specify correct equipment.

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Strategic consulting exercise – A client might request separate consulting engagements to assist with some more strategic business requirements. This often gives the provider the chance to specify, cost and work on other opportunities (see below).

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Large projects – Often a client will ask you to advise them on longer term projects. If these have a significant IT component then you’ll be in pole position to pick up this project.

These other opportunities/arrangements can form a significant part of the revenue derived from a customer. Some MSPs discount the price of their support contracts in order to win these other deals.

TIP: GFI MAX Building Blocks highlights many areas of opportunity for IT support companies.

2.2.4 Bigger exit

If you want to exit your business, the exit value will be largely determined by the quantity and quality of recurring income contracts.

All things considered, a Managed Services or recurring revenue model is preferable but there are difficulties and risks with changing your business model, which are detailed in the following section.

3.0 Challenges in starting a Managed Services program

You’re convinced making a move to Managed Services is a good

idea. What now?

This is exactly the problem we encounter with many small IT companies. They know roughly where they want to go, but don’t have a view on how to plan and make the journey. The solution is as always – know where you want to go, and ‘divide and conquer’.

The basic process is:

Marketing

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Define a service offering

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Cost and price the service offering such that customers will buy it

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Promote the service

Sales

_Ů

Get customers to sign-up for the service

Delivery Operations

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Deliver the service

Analysis

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Tune the service to ensure you’re profitable

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Go around the loop again

Remember you don’t have to do it full on, and you don’t have to do it with all of your customers. You can, and should, go at your and your customers’ pace.

TIP: It’s very important to our customers to retain customer trust and they are often reluctant to ‘over-sell.’ GFI MAX Building Blocks demonstrates an easy path to recurring revenue while retaining customer trust.

It is essential to understand how you can make this a profitable model prior to adding in more customers, staff and marketing effort. The following section outlines some considerations that you must take into account prior to scaling.

3.1 Profitable model before scaling

The basic equation at play is to agree what you’re going to do for the customer, how you’re going to do it, the price for delivering your end of the bargain, then make sure you do it, profitably.

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One angle is to drive down cost – achieve efficiencies

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Another approach is to maximize other opportunities

3.1.1 Drive down cost

Once a Managed Services contract is entered, the provider should look to reduce cost of support in one or more of the following ways:

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Pro-active monitoring – Monitoring can help save time by nipping developing problems in the bud before they become expensive and diverting catastrophes

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Pro-active maintenance – Tuning of IT equipment to reduce the effort required to support badly performing IT equipment

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Remote Support – Doing much of the support from your location using remote support tools

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Environment lock down – Locking down customer desktops can prevent customers from installing or ‘playing’ with software

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Software management – Software management utilities can ensure all machines are up to date; all non-compliant software is flagged up and removed before it costs time to look after them

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Clear scoping of contract – Excluding activities in the contract and billing these separately

TIP: GFI MAX Building Blocks describe these methods, in greater detail, for reducing cost while delivering outstanding services to your customers.

Of course, you’ll have built up internal procedures or invested in internal systems, modes of working, set lots of customer expectations and some of these may need to change to deliver a fully Managed Service.

3.1.2 System changes or additions

Monitoring

You should set up monitoring of key server and network parameters so you are ‘in the know’ timely and hopefully before the customers are aware of serious problems.

Consider having errors detected by monitoring automatically loaded into your helpdesk system via email or API level integration.

Ensure your technical team is in a position to commence working promptly when a high impact problem is detected. Often this means retaining somebody in the office or on call.

Stabilization work

Often you’ll want to perform remedial action to a new customer’s system to ensure it is up to your standard prior to taking them onto a fixed fee arrangement.

At the same time, document customer systems (best done by a technician) and perhaps save a snapshot of configuration files, etc.

Efficiency tools

You should deploy software tools to help you run this arrangement profitably, such as:

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Remote Support tools,

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WSUS server,

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Maintenance utilities/scripts – you should install or create these now.

Proactive maintenance

You should decide on a schedule of pro-active maintenance such as:

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Disk clean-up,

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Running malware removal,

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Disk defrag, etc.

You should use a tool like GFI MAX RemoteManagement to automate these tasks or load these tasks into your helpdesk or work scheduling system if you want to do them manually.

Remote Support

You should ensure your Remote Support tools work through customer firewalls and train the customer’s users on how to log calls and check progress with your company. At the same time, you’ll want to ensure your customer’s users know how the Remote Support tools work and, if appropriate, provide a demonstration.

Reporting

You will have agreed what reporting is required and where possible you should automate this, perhaps using a tool such as GFI MAX RemoteManagement.

Changes to your operation

It might be appropriate to either ring-fence time for maintenance or institute a separate maintenance and support team to ensure proactive work occurs. This will drive-up profitability of the arrangement in the longterm.

Performance review - internal and external

You should schedule a six-month review with your customer to discuss issues, problems, advice, etc. In addition you should frequently hold an internal review of how each of these contracts is operating, e.g.: is the customer satisfied and is it running profitably; can you offer this customer further services?

Changes to billing

You’ll have to ensure that your internal systems are set up to bill the customer the correct amount and split out what’s included in the arrangement and what’s not.

Changes to Helpdesk/PSA System

Undoubtedly, you’ll need to make changes to your internal systems to support SLA, fixed-fee work, etc.

Contracts/SLA

You’ll need to ensure customers know what to expect and protect yourself against legal problems with a:

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Contract

TIP: Many of the changes are covered in great detail in GFI MAX Building Blocks and in many cases we provide you with pre-written ‘assets’, e.g.: sample contracts and SLAs.

3.1.3 Maximize other opportunities

Some IT support providers attempt to make their support highly profitable and some look to make their support operation attractive, as they believe they make their highest quality profit on other sales, e.g.:

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Office moves

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Server replacements

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PC replacements

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Other ‘sticky’ services, e.g.: Offsite backup (hosted), email filtering, etc.

All things considered, Managed Services is a good idea but it doesn’t make sense to rush until:

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You’ve nailed your model for business growth,

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Made the required system changes (remember these are much wider than just technical systems),

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Educated your technicians into becoming sales ‘ears,’

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Built a method of meeting frequently with customers to ensure you’ve got a good flow of information regarding their business strategy, so you’re not the last thought,

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And finally, it doesn’t make much sense to rush into agreements with customers of which you’ve got little or no experience.

TIP: We recommend a pragmatic approach to Managed Services that is covered in more detail in the GFI MAX Building Blocks program.

4. Managed Services – A pragmatic approach

We say, yes, Managed Services is a good idea. But learn to do

it before you bet your business on it. Take a ‘nail it and scale it’

approach. Learn about new customers and their systems. Learn

how to do it profitably.

Learn to promote and sell Managed Services. Start with a few Managed Services contracts and get good at delivering. Roll in some more customers/packages. Keep tuning, then scale.

And remember, fixed cost contracts will never be for every customer. Some will forever refuse to take them up, so you’ll probably always have to offer some break/fix.

5. The GFI MAX approach to Managed Services

GFI MAX has developed Building Blocks to Managed Services - a

program which encapsulates operating knowledge, ideas and

experiences of some of our customers’ journey to Managed Services.

It is a pragmatic, low risk, easy to follow, modular approach to moving your business to Managed Services.

We don’t say ‘Managed Services is the only way’ as other vendors may. We say ‘do what’s right for you and your customer and do it at your pace, not your software vendors’ pace.’

We can say this because our pricing model works for all of your customer arrangements, be that break/fix, pre-paid ‘bank of hours’ or Managed Services contracts.

Our Building Blocks approach outlines ‘how-to’ and gives you many assets, e.g.: service packages, marketing collateral, profit and cost calculators, contracts and SLAs which will get you going towards Managed Services at your and your customer’s pace.

You know the relationship with your customer best. You know what’s possible and what’s not. Our job is to ‘make it easy’ for you to keep moving towards the ‘promised land’ of Managed Services, without compromising your customer relationships and your existing operation. We do this through the Building Blocks program.

We’ve split our Building Blocks service packages into two separate tracks:

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Managed Services for Servers & Networking

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Managed Services for Workstations

And for each of the tracks, we’ve provided the following to help you get going fast:

Make a service offering We’ve packaged a range of service offerings for you

Make a pricing structure

for that service offering We give you tools and examples to help you

Promote that service We’ve prepared lots of sample marketing material so you can quickly customize it and get it out the door

Get folks to sign up for the

service Our sales scripts/objection handling, contracts and other documents help you manage this stage

Deliver the service All the tools and implementation considerations are provided

Tune the service to ensure

you’re profitable We give you lots of considerations to consider profitability and tuning the service

All documents are electronic so you can make changes, add logos, etc. quickly. These are a collection of ideas, you can use some, pass on others. Simply, we help you get going, quicker. For more information contact us at [email protected].

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